Social Business and Return On Investment: Some Clarity

If you are still having trouble explaining or understanding the intricacies of social media R.O.I. (or social business R.O.I.), chances are that…

1. You are asking the wrong question.

Do you want to know what one of the worst questions dealing with the digital world is right now? This:

What is the ROI of Social Media?

I know. Coming from me, the guy who literally wrote the book on “Social Media R.O.I.” this might seem like a strange thing to say. But hear me out. It will all make sense in a few minutes.

It isn’t that the idea behind the question is wrong. It comes from the right place. It aims to answer 2 basic business questions: Why should I invest in this, (or rather, why should I invest in this rather than the other thing?), and what kind of financial benefit can I expect from it?

The problem is that the question can’t be answered as asked: Social media in and of itself has no cookie-cutter ROI. The social space is an amalgam of channels, platforms and activities that can produce a broad range of returns (and often none at all). When you ask “what is the social media or ROI,” do you mean to have Facebook’s profit margins figure in the answer? Twitter’s? Youtube’s? Every affiliate marketing blog’s ROI thrown in as well?

The question is too broad. Too general. It is like asking what the ROI of email is. Or the ROI of digital marketing. What is the ROI of social media? I don’t know… what is the ROI of television?

You’ve been asking the wrong question.

2. To get the right answer, ask the right question.

The question, then, is not what is the ROI of social media, but rather what is the ROI of [insert activity here] in social media?

To ask the question properly, you have to also define the timeframe. Here’s an example:

What was the ROI of [insert activity here] in social media for Q3 2011?

That is a legitimate ROI question that relates to social media. Here are a few more:

What was the ROI of shifting 20% of our customer service resources from a traditional call center to twitter this past year?

What was the ROI of shifting 40% of our digital budget from traditional web to social media in 2011?

What was the ROI of our social media-driven raspberry gum awareness campaign in Q1?

These are proper ROI questions.

3. The unfortunate effect of asking the question incorrectly.

What is the ROI of social media? asks nothing and everything at once. It begs a response in the interrogative: Just how do you mean? In instances where either educational gaps or a lack of discipline prevail, the vagueness of the question leads to an interpretation of the term R.O.I., which has already led many a social media “expert” down a shady path of improvisation.

This is how ROI went from being a simple financial calculation of investment vs. gain from investment to becoming any number of made-up equations mixing unrelated metrics into a mess of nonsense like this:

Equations like this are everywhere. Companies large and small have paid good money for the privilege of glimpsing them. Unfortunately, they are complete and utter bullshit. They measure nothing. Their aim is to confuse and extract legal tender from unsuspecting clients, nothing more. Don’t fall for it.

4. Pay attention and all the social media R.O.I. BS you have heard until now will evaporate in the next 90 seconds.

In case you missed it earlier, don’t think of ROI as being medium-specific. Think of it as activity-specific.

Are you using social media to increase sales of your latest product? Then measure the ROI of that. How much are you spending on that activity? What KPIs apply to the outcomes being driven by that activity? What is the ratio of cost to gain for that activity? This, you can measure. Stop here. Take it all in. Grab a pencil and a sheet of paper and work it out.

Once you grasp this, try something bigger. If you want to measure the ROI of specific activities across all media, do that. If you would rather focus only on your social media activity, go for it. It doesn’t really matter where you measure your cost to gain equation. Email, TV, print, mobile, social… it’s all the same. ROI is media-agnostic. Once you realize that your measurement should focus on the relationship between the activity and the outcome(s), the medium becomes a detail. ROI is ROI, regardless of the channel or the technology or the platform.

That’s the basic principle. To scale that model and determine the ROI of the sum of an organization’s social media activities, take your ROI calculations for each desired outcome, each campaign driving these outcomes, and each particular type of activity within their scope, then add them all up. Can measuring all of that be complex? You bet. Does it require a lot of work? Yes. It’s up to you to figure out if it is worth the time and resources.

If you have limited resources, you may decide to calculate the ROI of certain activities and not others. You’re the boss. But if you want to get a glimpse of what the process looks like, that’s it in its most basic form.

5. R.O.I. isn’t an afterthought.

Guess what: Acquiring Twitter followers and Facebook likes won’t drive a whole lot of anything unless you have a plan. In other words, if your social media activity doesn’t deliberately drive ROI, it probably won’t accidentally result in any.

This is pretty key. Don’t just measure a bunch of crap after the fact to see if any metrics jumped during the last measurement period. Think about what you will want to measure ahead of time, what metrics you will be looking to influence. Think more along the lines of business-relevant metrics than social media metrics like “likes” and “follows,” which don’t really tell you a whole lot.

This is an important point because it reveals something about the nature of the operational integration of social media within organizations: Social media isn’t simply a “community management” function or a “content” play. Its value to an organization isn’t measured primarily in the obvious and overplayed likes, followers, retweets and clickthroughs, or even in impressions or estimated media value. Social media’s value to an organization, whether translated into financial terms (ROI) or not, is determined by its ability to influence specific outcomes. This could be anything from the acquisition of new transacting customers to an increase in positive recommendations, from an increase in buy rate for product x to a positive shift in sentiment for product y, or from a boost in customer satisfaction after a contact with a CSR to the attenuation of a PR crisis.

In other words, for an organization, the value of social media depends on two factors:

1. The manner in which social media can be used to pursue a specific business objective.

2. The degree to which specific social media activity helped drive that objective.

In instances where financial investment and financial gain are relevant KPIs, this can turn into ROI. In instances where financial gain is not a relevant outcome, ROI might not matter one bit.

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Want to help improve business through your digital programs? Pick up a copy of Social Media ROI – Managing and Measuring Social Media Efforts in your Organization. The #1 Social Business desk reference for executives and digital managers.

(Now translated into a bunch of languages including German, Korean, Japanese and Spanish.)